Case Law Update: Goods and Services Tax Act 2014 - Special Refund of Sales Tax for Goods Held on Hand
By way of background, the goods and services tax (GST) regime in Malaysia was implemented on 1 April 2015. Prior to the implementation of GST, Royal Malaysian Customs Department (RMCD) collects sales tax from companies on certain imported and locally manufactured goods under the Sales Tax Act 1972 (STA). Under the STA regime, companies were required to pay sales tax upfront upon the importation of certain goods into Malaysia.
Immediately after the implementation of GST, most taxpayers were faced with the issue wherein having paid sales tax on certain imported goods, they were also required to account for GST upon the supply of the same goods to consumers. Parliament had anticipated this potential issue and included transitional provisions in the Goods and Services Tax Act 2014 (GST Act) designed to address this predicament. Section 190 of the GST Act provides that taxpayers are entitled for special refund of taxes equal to the amount of sales tax paid for goods held on hand as at 1 April 2015, provided that the taxpayers satisfy a list of conditions.
Recently, Wong & Partners represented a the taxpayer (Taxpayer) which had applied for a special refund of sales tax under Section 190 of the GST Act to the Director General of Customs (DG), to obtain a refund of sales tax paid (Refund Application). However, despite fulfilling all the condition stipulated under the GST Act, the DG rejected the application (DG's Decision). The Taxpayer filed a judicial review application against the DG's Decision.
The Taxpayer in this case had submitted a special refund application to the DG under Section 190 of the GST Act in order to obtain a refund of sales tax for goods held on hand. The DG rejected the Applicant's Refund Applicant vide a letter (Decision Letter) which provided no reasons for the rejection. Further attempts to obtain the DG's reasoning were unsuccessful. Frustrated, the Taxpayer filed a judicial review application.
In the course of the judicial review proceedings, the DG had averred that it had rejected the Taxpayer's Refund Application because the Taxpayer had failed to comply with the provisions of the Price Control and Anti-Profiteering Act 2011 (PCAP Act). The DG claimed that the Taxpayer had profiteered by failing to lower the prices of its goods (attributable to the lower GST rate of 6%, as compared to 10% under the sales tax regime). As such, the DG was justified in denying the Taxpayer of its sales tax refund.
The Taxpayer denied the allegation and argued that the DG had exceeded its powers in invoking the provisions of the PCAP Act (which is governed by the Ministry of Domestic Trade, Co-Operative and Consumerism (MDTCC). Briefly, the Taxpayer advanced the following points:
(a) first, the conditions required to be fulfilled in order to claim special sales tax refunds are clearly stipulated under Section 190 of the GST Act. Compliance with the PCAP Act is not one of them. As such, the DG is not at liberty to unilaterally impose additional requirements which are not expressly provided by the GST Act. The DG cannot usurp the Parliament's legislative functions.
(b) secondly, the relevant ministry empowered under the PCAP Act to enforce the same is the MDTCC and not the DG. Whether or not a taxpayer had "profiteered" is to be determined by MDTCC and not the DG. Thus, the DG had clearly acted in excess of its powers by assuming the function of the MDTCC.
The High Court's Decision and Conclusion
When delivering its oral judgment, the learned High Court judge found in favour of the Taxpayer and agreed with the abovementioned arguments.
This is the first case of its kind and represents a crucial GST case - a decision which is much welcomed. The High Court had effectively set a precedent that the DG is bound by the powers conferred within the four corners of the GST Act. It cannot on its own accord encroach into the domain of other governmental bodies in the course of administrating GST-related functions.